202 Government Finance Statistics Manual 2014
Claims of pension funds on pension manager (62064, 62164, 62264, 63064, 63164, 63264)
7.199 An employer may contract with a third
party to administer a pension fund for its employees.
If the employer continues to determine the terms of
the pension scheme and retains the responsibility
for funding any defi cit, as well as the right to retain
any excess funding, the employer is referred to as the
pension manager and the unit working under the di-
rection of the pension manager as the pension admin-
istrator. If the agreement between the employer and
the administrator is such that the employer passes the
risks and responsibilities for any defi cit in funding to
the administrator in return for the right of the admin-
istrator to retain any excess, the latter becomes the
pension manager as well as the administrator.
7.200 When the pension manager is a unit diff er-
ent from the administrator, and the responsibility for
any defi cits, or claims on any excess, rests with the
pension manager, the following are recorded in the
balance sheet of the pension manager:- A liability for claims of pension funds on the
pension manager, in the case of defi cits - A fi nancial asset in the form of a claim on the
pension fund, if the pension fund generates more
investment income from the assets it holds than
is necessary to cover the increase in pension
entitlements - A counterpart entry should be recorded in im-
puted employer’s social contributions on a net
basis (i.e., an expense to increase the liability and
a reduction in the expense when the liability re-
duce or when government acquires an asset).
Provisions for calls under standardized
guarantee schemes (62065, 62165, 62265,
63065, 63165, 63265)
7.201 Standardized guarantees are those kinds of
guarantees that are issued in large numbers, usually
for fairly small amounts, along identical lines.^60 Op-
erators of standardized guarantee schemes incur lia-
bilities equal to the present value of the expected calls
under outstanding guarantees, net of any recoveries(^60) In contrast, one-off guarantees are individual, and guarantors
usually cannot reliably estimate the risk of calls. As a result, in
most cases, one-off guarantees are considered a contingent liabil-
ity (unless and until such guarantees are called). For a discussion
of contingent liabilities, see paragraphs 7.251–7.260.
the guarantor expects to receive from the defaulting
borrowers, a similar approach as for nonlife insur-
ance. Th is liability is called provisions for calls under
standardized guarantees.
7.202 Th ere are three parties involved in these ar-
rangements: the borrower (debtor), the lender (credi-
tor), and the guarantor. Either the borrower or lender
may contract with the guarantor to repay the lender
if the borrower defaults. Examples are export credit
guarantees, deposit guarantees, and student loan
guarantees. Standardized guarantees are based on the
same paradigm as that for nonlife insurance, and a
similar treatment is adopted for these guarantees, as
discussed in paragraphs A4.66–A4.80.
Financial derivatives and employee stock options (6207, 6217, 6227, 6307, 6317, 6327).
7.203 Financial derivatives and employee stock
options are fi nancial assets and liabilities that have
similar features, such as a strike price and some of the
same risk elements. However, although both transfer
risk, employee stock options are also designed to be a
form of remuneration.Financial derivatives (62071, 62171, 62271, 63071, 63171, 63271)
7.204 A fi nancial derivative contract is a fi nancial
instrument that is linked to another specifi c fi nancial
instrument, indicator, or commodity and through
which specifi c fi nancial risks (e.g., interest rate risk,
foreign exchange risk, equity and commodity price
risks, and credit risk) can be traded in their own right
in fi nancial markets. Transactions and positions in fi -
nancial derivatives are treated separately from the val-
ues of any underlying items to which they are linked.
Financial derivatives are valued at market prices pre-
vailing on balance sheet recording dates. If market
price data are unavailable, other fair value methods
(e.g., option models or present values) may be used
to value them. Compilers are generally constrained to
use the parties’ own accounts.
7.205 Th e risk embodied in a fi nancial derivative
contract can be traded either by selling the contract it-
self, as is possible with options, or by creating a new
contract embodying risk characteristics that match, in
a countervailing manner, those of the existing contract.
Th e latter practice, which is termed off setability, occurs
in forward markets. Off setability means that it is oft en